In a company’s balance sheet, prepaid expense is classified as a current asset. This means that it will benefit the business in the future, generally within a year. Prepaid expenses can be made to support standard business operations. Prepaid expenses cannot be added to the income statement. Prepaid expenses arise when a company pays in advance for goods or services it will receive in the future. Common examples include rent, insurance premiums, and legal retainers. A prepaid expense is an expense that is paid for in advance. Recurring expenses such as insurance and rent can be paid for with one payment that covers the cost of the expense for several months or even a year. Often, businesses prepay expenses in this manner because they can receive a discount. Prepaid expenses also provide a benefit to a business by relieving the obligation of payment for future accounting periods. In this manner, prepaid expenses are considered an asset. Anything that has ... Prepaid expenses are costs you pay up front for goods or services that you'll use in future accounting periods. See common examples and how to record them.
